Commercial Law - New Rules for Companies and their Directors

Published:

1 October 2008 is the date on which the next batch of provisions of the Companies Act 2006 comes into force[1]. Some of the most important changes effected by those provisions are the new rules on appointment and additional duties of directors. As from 1 October 2008:

- all directors must be at least 16 years of age

- all companies must have at least one natural person as a director[2]

- a director must avoid an situation in which he has an actual or potential direct or indirect unauthorised conflict of interests with the company (save for one where he is undertaking a transaction or arrangement with the company), in particular with regard to the exploitation of any property, information or opportunity

- a director must not accept a benefit from a third party given because of his position as a director or in return for his doing (or not doing) anything in that capacity unless acceptance of that benefit could not reasonably be said to be likely to give rise to a conflict of interests

- a director who has any direct or indirect interest in a proposed transaction or arrangement with his company is generally obliged to declare that interest to his fellow directors before the company enters into the transaction or arrangement, and to update his declaration if circumstances change and render it incomplete or otherwise inaccurate

- a director who has any direct or indirect interest in an existing transaction or arrangement with his company is similarly generally obliged to declare it as soon as reasonably practicable unless he has already done so at an earlier stage, and to update his declaration if circumstances change and render it incomplete or otherwise inaccurate

- the board of directors may authorise a conflict of interests on the part of one or more of its number if and insofar as they are permitted to do so by the company’s constitution (i.e. provided that they have first amended their articles of association to enable them to do so)

Also coming into force on 1 October 2008 are:

- a new simpler means to reduce share capital in a private company, which requires only a solvency statement from the directors rather than an order of the court

- a new company names adjudication procedure, allowing a person to object to a company’s registered name on the basis that it is the same as a name associated with him in which he has goodwill or sufficiently similar to such a name that its use in the UK would be likely to mislead by suggesting a connection between the company and the applicant. The matter will then be resolved by a Company Names Adjudicator

- trading disclosure requirements as to the company’s name and other information, with both civil and criminal consequences in the event of non-compliance

- new requirements as to the provision of information about shareholders in annual returns

Finally, 1 October 2008 sees the repeal of the statutory ban on financial assistance by a private company for the purposes of the acquisition of shares in itself or another private company.

[2] Although if the company had only corporate directors on 8 November 2006 it has a further 2 years in which to remedy the position

This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.